Alaska Supreme Court upholds rule requiring rent on expired oil leases during appeals

The Alaska Supreme Court ruled Friday that oil and gas lessees appealing a state leasing decision must keep paying rent on expired leases or lose them by operation of law, unless a lease has a well capable of producing oil or gas in paying quantities. The ruling finalized the termination of five North Slope leases in which Daniel Donkel claimed an interest, leaving his unitization appeal moot as to them.

The rent rule is "a constitutional and reasonable exercise of the authority committed to" the Department of Natural Resources, Justice Pate wrote.

The leases lie in the Badami Unit, formed in 1995 east of Prudhoe Bay. Savant, LLC applied in November 2012 to expand the unit by seven leases. The Division of Oil and Gas approved two and denied five in March 2013, then reversed itself entirely in January 2021, citing an out-of-date work plan and no data connecting reservoirs inside and outside the unit.

All six leases' primary terms ended between 2017 and 2019 while appeals were pending. Brooks Range Petroleum Corporation, the notification lessee, paid the rent until 2021, then stopped. Donkel, who appealed alone, refused, calling the rule a "pay to play" scheme conditioning his right to keep litigating on a non-refundable payment. The regulation does let DNR refund current-year rent, prorated by month and acreage, if a final decision does not extend the lease.

The court disagreed. The rule "does not prevent a lessee from filing an appeal; it simply requires payment to retain an interest in an expired lease during an appeal." Donkel never claimed he couldn't afford the rent. DNR said the rent compensates the state and deters endless appeals.

The court called DNR's delay "likely" unreasonable, noting the department offered no explanation for the more than five years it took to remand the 2013 appeal, but found no due process violation absent prejudice to Donkel. It upheld the attorney's fees against him.

For the sixth lease, ADL 390825, in which Donkel holds a royalty interest, the court affirmed the commissioner's denial of unitization. Whether that lease has such a well remains before the commissioner and determines whether it, too, has terminated.